So, shall we move on?
In the comments to the previous article, I was asked to pay more attention to public-private partnerships in the social sphere and to cite examples from the Private Finance Initiative (PFI) system, which until recently operated in Great Britain.
Well, be my guest.
The distant future. But today
Projections of settlements for PPP
Above, in the attached picture, a forecast of how much should be paid to the UK government for PPP-built facilities.
We see that the Department of Health has used the PFI system (recall: PFI = design, build, finance, maintenance — the private partner, and doctors/teachers services for the government) for a larger investment than any other ministry (£13 billion).
In the previous two years, health authorities paid out a total of £2 billion, representing 1.7 percent of the total money allocated to the Department of Health and Human Services.
About half of the current annual expenditure on PFI is related to the repayment of the private partner’s debt (loan) and financing costs (interest and dividends). The remaining amount paid by HHS is maintenance costs — the cost of operating and maintaining the facilities.
The proportions between (i) debt repayment costs, (ii) interest costs, and (iii) maintenance costs, will change over time as the debt is repaid and will of course vary from project to project.
Maintenance and repair costs in PPP projects increase each year in line with the retail price index inflation rate — as laid out in PPP agreements.
But there are also cases where the entire payment, not just the maintenance fee, increases with inflation. This is a topic of a separate conversation…
So countries starting to implement PPPs in the social sphere need to understand what calculations await them in the future…